Today capital flows are continuing to dump risk and pool in the usual ‘safe haven’ suspects. Gold bullion is through $1300. The US dollar, Yen and Swiss Franc are all strongly bid, with the Yen funded carry trade in swift reversal. The Yen has strengthened to $104.20/USD today, far stronger than the $110.98 area it peaked at in the global market sell-off into February of this year. Oil, copper and commodity-currencies are tanking. Other than cash safe-haven currencies, treasuries are in high demand once more.
This chart of the US 10-year Treasury yield tells the tale of central bankers who are running on empty and losing the confidence battle amid political upheaval far and wide. Today breaking below 1.56%, the 10-year yield has now broke below the prior lows of February 2016, 2015 and 2013. But with German, Swiss and Japanese 10-year treasuries now all with negative yields, a global flood of yield-starved cash may well push North American yields lower still. The next test, as circled in the far left yellow oval below, is the 1.39 all time low reached in 2012.
As the long always, sell side, perpetually insists that the economy is ‘getting better’, ‘job growth is good’, ‘profits should improve’ and ‘central banks still have options’, capital is stampeding out of risk markets all around them.
The catalyst is not ‘Brexit’ or Trump, irrational fears, or any one of the dozens of recessionary looking economic indicators worldwide. The catalyst is the growing awareness that central banks have not only failed to steward global inflation and job growth–but their relentless credit ‘stimulants’ have been instrumental in decimating them.
Economic contraction and the coming bear market have been well and surely earned. Rather than deny the power of market cycles, it is wise to take cover and allow mean reversion to run its value-restoring course, however long it takes. The upside for those with discipline and foresight, promises to be well worth the wait.